(Credit:Sarah Mitroff/CNET) If there was any question that the cloud storage business is a high stakes game, Google erased all doubt this week. The search giant shook up the consumer cloud world by drastically slashing its paid plans. Fifteen gigabytes of storage are still free, but 100GB are now $1.99 per month, down from $4.99. Even more impressive is the fact that you can get an entire terabyte of space for $9.99 a month, which used to be $49.99. The move signals a clear, ruthless investment by Google. And when a giant like Google makes a push like that, it reverberates through the entire ecosystem, and the other players have no choice but to react. This isn't the first time Google has made a change that sent other companies jumping. When it began to re-categorize emails in Gmail, at least one firm that depends on the platform noted the change in an SEC filing, under the section "Risk Factors." The comparison isn't directly analogous, but the fairly obvious point remains. Google's stirrings are a big deal.
Calling out Google's price cut announcement as a turning point might seem a little out of place in a market as bustling as consumer cloud storage. (And yes, I'm aware of the absurdity of that last sentence.) The boring business of storing digital bits used to be etched in old guard tech companies like IBM, but has since been remade in the image of youthful upstarts like Box and Dropbox. Both with respective youthful leaders. Related: Dropbox CEO Drew Houston plays guitar in a 90s cover band called the Angry Flannels.
But more importantly, both have multi-billion dollar valuations -- Dropbox at $10 billion and Box at $2 billion. And both have ambitions of becoming big public companies. Box is rumored to make its public market debut this year.
To be clear, as the early movers and shakers in the space, Box and Dropbox still have the upper hand in terms of experience. But Google's aggressiveness does underscore how very cutthroat the fight has become. Since Box came along in 2005 and Dropbox in 2007 -- not to mention a host of other competitors like Carbonite, SugarSync and Hightail (rebranded from Yousendit) -- the giant tech incumbents have also launched services of their own. In addition to Google, which launched Drive in 2012, there's Microsoft's OneDrive (formerly Skydrive), and Amazon Cloud Drive. Sure, Google, with its $400 billion valuation, can throw around the weight of its margins to upend the market's pay structure, but at its core, Google's 80 percent price cut for monthly access to a terabyte of space just validates the business models of the smaller companies.
The upstarts were surely prepared for this. At least Aaron Levie, Box's co-founder and chief executive, was. (Here we should point out that while Box's meat and potatoes business is serving the enterprise, it also has consumer options. Inversely, Dropbox has enterprise options.) Levie was not available for comment, but in April 2012, when Google Drive first launched, he wrote:
Ultimately, we concluded that there would be a dramatic race to the bottom for the price of consumer online storage, and it would be impossible to maintain a competitive offering when elephants like Google, Microsoft and Apple could effectively subsidize their offerings. Because of the potential for user lock-in, each of these players had deep incentive to provide consumers with a drive in the sky, and with storage costs dropping precipitously, we saw a future where storage would be infinite and free. That just doesn't make for a great startup business.
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